WTI $106.50 +47c, Brent $114.00 -46c, Diff $7.50 -93c, NG $4.55 -2c
Today’s blog is already looking like one of mega proportions, partly as there was a lot of interesting news yesterday and partly as there is much going on today, all in my most interesting stocks. Before I start I would like to draw your attention to an interview I did with IG UK on Tuesday, it is primarily meant to be an insight into the situation in Iraq with particular reference to Kurdistan but also looks at Genel and Gulf Keystone. Please bear in mind that this was done before yesterday’s GKP announcement which I cover today, here is the link and it will be on the website soon. : http://www.youtube.com/watch?v=94M0NUjcQO0
So, to the oil price and yesterday the WSJ, in an article by Liam Denning, managed to scoop that the Commerce Department in the US had slightly relaxed the oil export rules allowing Pioneer and Enterprise to export condensate if it had been ‘minimally refined’. This is early days and will by no means lead to a flood of exports but as you know that I agree with the esteemed Dan Yergin in thinking that exports of crude oil is only a matter of time. The market seemed to agree as the share prices of Valero (-10%), Phillips (-5%) and Marathon (-7%) all reacted badly indicating that the long period of advantage held by the refiners was coming to an end. I think that this reaction is overdone and that the refiners will still be competitive.
Yesterday and to a lesser extent this morning the Brent price has fallen a bit more than a dollar from the recent highs. This can be put down to the market, whilst still aware of the situation in Iraq, feel that, at least for the short term, that supplies from the country are flowing ‘normally’. Opec have put out a statement that ‘there is no need for any raising of production at this stage’ and traders have sold a bit of the froth, partially caused by an influx of non professional buyers in the market.
WTI faced a two-way pull as the news from the Commerce department first drove the price up and then the EIA came out with an unexpected build in crude stocks. The teenage scribblers on Wall Strasa were yet again caught on the hop as they got the sign wrong having expected a draw of 1.2m against the eventual build of 1.74m barrels!
US Service Companies- Nabors/C&J Energy, Schlumberger
Nabors and C&J Energy have announced a merger although it looks to all intents and purposes to be a C&J takeover to me. In the $2.86bn deal which is in cash and C&J stock, the new company is to be called C&J, and will be run by, you’ve guessed it, C&J management. The deal is earnings accretive to C&J in the first full year and gains will be made in leveraging costs and by revenue synergies.
Schlumberger has long been a big favourite in the blog and the chart looks amazing still. The shares rose nearly 7% yesterday after the company upped its guidance quite significantly. They now expect compound EPS growth to be in the 17-20% range over the long term compared to previous guidance of 15%. With a target of $9-10 they expect to see revenue growth, margin expansion and further share repurchases. This is dynamic stuff and even at $113.85 I am not losing confidence in the buy recommendation yet.
This was a curates egg of trading statements and certainly provided food for thought for those who wished that the turbine business had been exited a long time ago. With WG PSN being nicely ahead of expectations and engineering being in line, the fact that turbines will be ‘behind expectations’ is a disappointment but overall EBITA is ‘in line with market expectations’. As I mentioned on Monday, having risen two pounds from the low after the confusing profits warning last autumn, the market has been more than comfortable with Wood but needed more than this to scale previous highs.
Hurricane Energy – Lancaster a right Royal result…
Hurricane has successfully completed the testing of the Lancaster well which has been suspended as a future producer. The market had been understandably cautious as despite this being an appraisal well it comes into the category of being ‘too difficult to read’ for a lot of people. Not Dr Rob Trice who has worked on fractured basement plays since he was at Enterprise oil and not always getting the appropriate reward for his faith. Lancaster has certainly ‘come in’, as at 9,800 stock tank b/d (which was constrained by the capacity of the surface testing equipment) using artificial lift using ESP equipment and 5,300 stb/d on natural flow of 38º API crude it is a huge success. This well has certainly delivered, it is a 1km horizontal, through fractured basement granite rock and is ahead of time with a perfect result. The share price this morning has risen dramatically and as I write is now over the IPO price of 43p back in February. With 100% of this asset Hurricane find themselves in a uniquely strong position and justifies the decision not to farm-out too early. I imagine that the company will now have potential partners queuing up to participate in this very valuable asset. When I urged investors to buy at 23p I said that I thought that the shares were cheap ‘by a factor’, I have no reason to change my view and believe that this well has franked the value of Hurricane and the future is very bright.
Caza – Things can only get better…
Another blog favourite has announced well results this morning, this time Caza has given very positive flow rates from the Jazzmaster 17 #3H horizontal Bone Spring development well. Not only has it produced at 650 b/d of oil equivalent but as an offset the infrastructure is nearby and after less than three days since it completed oil and gas sales are already happening. This result merely confirms that the Caza management has really got a highly valuable asset here and it can only get better, the stock is still very cheap.
Unfortunately for Ophir, the Okala-1 well in the Mbeli block offshore Gabon has come up dry. The company states that the failure is due to either the source and/or low charge issues. The rig is off to Equatorial Guinea for a number of wells in the summer programme.
A rather disappointing statement from Gulfsands this morning as whilst I had taken as read that the Syrian acreage was on the back burner for a very long time the company still think it can be resurrected. My more positive stance taken at the beginning of the year has not been ruined but certainly tarnished by the company stating today that it was likely to need some more cash, just what the market doesn’t want to hear right now. Having more than doubled this year a fair bit of that has now been given back and although there is plenty of interest, particularly in Morocco the funding issues may dog the stock for the time being. For investors who may still have decent gains I wouldn’t be averse to taking some money off the table, it sounds like you may get a chance to invest before long…
Yesterdays news round up…
Premier Oil announced that Tony Durrant would succeed Simon Lockett as CEO with immediate effect. There is no doubt that there is nobody more knowledgeable than him with regard to the Premier portfolio and the board have decided it is the best plan to carry on where Simon has left off. Premier have a number of exciting projects coming up and with some tweaking of the portfolio might yet deliver for patient shareholders although I still wonder whether those people who set all this in motion expected this outcome…
Gulf Keystone had a bit of a night of the long knives yesterday at executive and non-executive levels. I suspect that the board decided that as governance issues still dog the company it was time for Todd to move away from the CEO role and let someone else take up the challenge. The question is that with him still on the board will that new person be able to move with a free hand? My reading of it all is that however controversial he is, Todd still has the excellent relationship with Dr Ashti which has been and remains crucial for GKP in Kurdistan and this is a way of keeping it so. If they find that the new CEO can work with this I see no reason why GKP cannot eventually regain investor sentiment and deliver the value that is within the portfolio. There is the small matter also of having the head-hunters find a new CFO but in a way this might help the whole process. (Ewen Ainsworth former CFO has recently joined Adamant Ventures as an Investment Partner)
Only Gulf Keystone could muddy these clearing waters by having another spat with a number of the non-executive board members only months after accepting them, this time messrs Bell and Asher appear to have burned their boats and Tom Shull resigned in sympathy. Quite what M&G will do about this is anyone’s guess, having gone to such lengths to install them I can’t imagine that they will fall into line but they may take a more dispassionate view. Either way these actions taken together may, ironically, have triggered either a more positive future for an independent GKP or hastened corporate action, either way shareholders will probably benefit. (See note above about my interview on IG UK)
Sound Oil also had a few director changes yesterday although on a far more discrete basis. Simon Davies, already a non-exec and major investor steps up to the Chairmanship which is a very good call, the previous Chairman stays on the board with his wealth of technical experience. CFO Stuart Joyner is leaving, having had a short but incredibly successful time with the arrival of a major new shareholder and the Nervesa farm-out completed. He will of course be missed but as the company says they can’t stand in his way and with the progression of the company proceeding at pace it is a good time to be appointing a new CFO. I am looking forward to spending some quality time with the company in a visit to its Italian assets next week.
IGas had results yesterday and as I always say they are never important stacked up against the excitement of the next year or so as the shale operations get under way. The year was a busy one with the Total farm-out and since the year end with the Dart acquisition which puts IGas in the driving seat for investors looking at the UK unconventional plays. IGas have certainly cottoned on to the need for education and building relationships with the communities in which they operate, something that will be needed big time in the next year or two. I still think that whatever the outcome of the shale gas process is over the next couple of years investors have little choice as to the vehicles they can choose, to me IGas, like Egdon and Alkane is too cheap and my target of 250p still stands.
Having done all that I am as exhausted as Luis Suarez’ dentist but sport goes on…
In the World Cup we have only one day left of the group games so the minnows are off home, like Italy, Spain and England… Argentina look good if a bit flaky at the back but will always back themselves to score more than others, but otherwise not many surprises. Tonight both groups could change, Germany and Belgium will of course win the groups but Algeria or Russia could qualify as could Ghana or Portugal. The best bit…Jurgen ‘the diver’ Klinsman taking his USA side to play Germany!
In SuarezGate I have heard a few good gags…
Just downloaded a video of Luis Suárez’s greatest moments. It was only 3 mega bites.
Luis Suarez is to be handed a 2 year punishment by Fifa. He must spend another 2 years living in Liverpool.
Luis Suárez has left Liverpool to join Borussia Munchonyourcentreback….
more tomorrow I hope.
At Wimbledon no surprises yet, Muzza cruised through and is yet to be tested as with the other top seeds.